Succession planning is likely the most common topic presented by family business advisors and other experts, but for good reason. It is something every family business should do, yet less than 70% of them make it to the second generation, in part due to lack of a plan. Succession planning may seem overwhelming and too large and complex to approach. However, there are steps your family business can take today with many reasons as to why this shouldn’t be put off any longer.
The “good” reasons family business owners have for postponing succession planning. There must be some convincing arguments to not start succession planning because so many family businesses forego this important step. Most of these are very human and subjective reasons, which are likely to crop up when the subjective nature of family mixes with the objective nature of business. Following are many of the imagined roadblocks:
- There is a lot of work to be done and simply not enough time to spend on planning for the future when there are concrete issues that need solutions now.
- Owners feel they are immortal, or at least do not wish to acknowledge the possibility of death, injury or a temporary absence – unforeseen or otherwise.
- There is plenty of time to think about succession planning as retirement is decades down the road.
- The mere idea of letting go of one’s creation, the source of one’s identity, is sometimes too much to bear.
- Putting into words the power and privileges some family members may receive – while others may not be included to the same extent or at all – is a recipe for family feuding.
- Everyone in the family is uncomfortable talking about mortality, money, ranking, and other topics that are part of a succession plan.
The good reasons family business owners should start the succession planning now. Despite the arguments against planning listed above, a step back and an objective view can assist family business owners in seeing that a succession plan can actually prevent most of those issues, as well as help with others. Here are some solid reasons to accept the need for a succession plan, and to start it now rather than later:
- Time spent working on a succession plan today is a great time-saver in the long-run, and it fixes all the problems caused by not having a plan.
- Family business owners, like the rest of us, are not immortal. Accepting this fact will help with the realization that the business needs to be run when (not if) something temporarily or permanently happens to the owner.
- Planned retirement may be decades down the road, but see the immortality reason above for a reminder that anything can happen. And retirement planning is still planning – it must be done in advance in order to build the necessary wealth for financial freedom when the time comes.
- If the family business founder truly loves the creation that became the business and wants to see his or her values and mission maintained in the long-run, a succession plan can set up parameters, requirements, and indicate in writing what is most important to the business.
- Family members may fight over terms in a succession plan, but they are also very likely to fight when there is the need for succession and no written plan. While handling family infighting has its own causes and solutions, spending the time to plan for the future and to give a head’s-up to the family is more likely to prevent many skirmishes.
- Uncomfortable discussion topics such as money and mortality are natural. But these are common business topics that must be addressed. So, buck up and focus on the good of both the business and the family.
- Having a plan means there will be the opportunity to train successors, whether or not they are family members. Osmosis is not the best training method.
- Loving one’s family and not wanting to worry them with these details while dealing with possible angst and grief caused by a transition is a reason for a succession plan, not against it.
- Careful planning, including estate planning with the succession plan, may help to preserve family wealth and avoid some taxes.
- If it turns out no one in the family wanted to be the successor and the business would have to be sold, the value of the business would be higher if planning occurred and different possibilities were taken into consideration.
First steps to starting a succession plan. Once acceptance of the need of a succession plan has happened, the planning should commence without haste. A few starting points below can help the family business owner to begin this important process:
- Gather the key advisors (e.g., accountant, lawyer). Also, if the family business does not have any, now is the time to consult with a family business advisor. The professionals who have helped other family businesses with their succession plans can save precious wasted hours and avoid mistakes that a non-professional may make.
- Start the communications process with the family. Discuss expectations and desires of all involved members so planning will take these into consideration.
- Put emotions aside, and focus on the needs of both the family and the business.
No one succession plan will work for every family business, so working with a family business advisor can streamline the process and ensure every base is covered.
Contact me at lconover@curchin.com or 732.747.0500 with questions about starting your succession plan or to receive a complimentary consultation with our family business advisors.
